MeenaKrishnamsetty

MattDoiron

The most comprehensive data on what hedge funds and other major investors own comes in the form of 13F filings. These filings are made public six to seven weeks after the end of a quarter and disclose what many of the portfolio's long equity holdings were at that time. Even with the time delay, we have found that it is possible to formulate investment strategies based on the information found in 13Fs. The most popular small cap stocks among hedge funds have tended to outperform the S&P 500 by 18 percentage points per year (learn more about our small cap strategy). Of course, 13Fs are also a list of "stock picks" from top investors and these stocks can be researched in more detail if they seem attractive.

Carl Icahn has had a busy month and a half. Since the beginning of 2013, the billionaire activist investor has reported a large stake in Transocean
RIG, -2.32%
booted CEO Aubrey McClendon out of Chesapeake Energy
CHK, -1.62%
gotten a big win for his portfolio as Netflix
NFLX, +1.26%
crushed expectations, and is currently dismantling fellow billionaire Bill Ackman's short position in Herbalife
HLF, -0.37%
following a charged, attention-getting confrontation with Ackman on CNBC. Here are some investment themes that stand out when comparing his 13F for the end of December 2012 to previous filings:

Hated energy companies

Icahn initiated a position of almost 6 million shares of Transocean, the contract driller which has been partially blamed for the Deepwater Horizon disaster and whose stock price has remained low as investors express concern over the deep-water drilling industry. He has since reported ownership of over 20 million shares of the company, giving him an investment of over $1 billion. Transocean trades at 12 times analyst consensus for 2013, and the five-year PEG ratio is 0.7. Omega Advisors, managed by fellow billionaire Leon Cooperman, is another major shareholder of Transocean (find Cooperman's favorite stocks).

We've also mentioned Icahn's position in Chesapeake, which he first reported early last year. The company's CEO had been criticized for questionable personal business deals, as well as being too aggressive in expanding Chesapeake's asset base; between management and cash flow issues the share price had been plunging when Icahn had announced his stake. The stock is up 23% year to date, signaling how satisfied the market is to see McClendon gone. Icahn had added shares of Chesapeake during Q4 2012 as well.

Netflix

Icahn had also made news late last year by taking a large position in Netflix, and he reported owning 5.5 million shares of the stock at the end of December. Billionaire Eddie Lampert's ESL Investments has also been buying shares of Netflix (see Lampert's stock picks). 18% of the shares outstanding are held short, and the forward P/E- which is based on expectations that Netflix's business is fairly stable and will be able to grow its earnings over the next couple years- is 68. The highly volatile stock has been on the upswing overall in the last year, up 54%. Netflix faces severe challenges due to content costs and is also investing in overseas expansion, and as a result its bottom line has suffered even as the company has been successful in adding subscribers. Revenue was actually up 8% in the fourth quarter of 2012 compared with the same period in the previous year.

Dumping Oshkosh

This one wasn't quite news either: Icahn failed in an activist campaign to gain more power of Oshkosh
OSK, -0.17%
board of directors through a tender offer, and reported no shares on his 13F. Oshkosh is a $3.5 billion market cap manufactures vehicles and vehicle bodies, generally for industrial, military, or public service functions. While the activist battle is over, in terms of valuation metrics Oshkosh actually looks cheap as is: it carries trailing and forward P/Es of 15 and 12, respectively, and earnings were up last quarter compared with the fourth quarter of 2011.

We'd consider Netflix just too speculative and volatile to take any position on right now. Oshkosh, Transocean, and even Chesapeake meanwhile at least have potential as value stocks (we'd take Icahn's sales of Oshkosh as an acceptance that he won't have influence over the Board, rather than him actually being bearish on the stock). Natural gas prices are certainly challenging for Chesapeake, and Transocean may be dependent on high oil prices as well, but we think they are still worth considering.

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